Will Paul Martin give the bank watchdog a longer leash?

Banking Ombudsman - currently employed by the banks - becomes subject of fierce debate as finance minister looks into the mandate and independence of the office

By: Paul Weinberg

  Quick now. How many of you have ever heard of the Canadian Banking Ombudsman?
  But the Ombudsman, whose office was established four years ago by the large banks, does exist. His initial raison d'etre was to hear complaints by small business about alleged loan-policy discrimination and related issues. As public rancour against the banks grew in the late 90s, the Ombudsman's mandate expanded to include the concerns of individual customers.
  Walk into any bank branch and you are unlikely to spot a prominent sign informing customers where they can direct their frustration with the banking system.
 

One critic complains that the Ombudsman's office is seriously compromised because the banks provided the financing, hired the first and only Ombudsman and picked the initial board of directors

  Now sometime this year, the federal government is expected to introduce legislation covering the entire financial services sector under its jurisdiction. This follows a task force report and a white paper, both stemming from Finance Minister Paul Martin's rejection of a proposed series of mergers of the large banks last year.
  One group which had a major impact on the government's decision was the Canadian Community Reinvestment Coalition (CCRC), chaired by Duff Conacher, who is also co-ordinator of the Ottawa-based Democracy Watch. He expects Martin to follow through on a promise to bring in an expanded and more independent ombudsman and to replace "a fatally flawed system."
  Conacher's main beef with the current Canadian Banking Ombudsman, "set up behind closed doors with [Paul] Martin," he says, is that it is seriously compromised by close ties to the financial institutions, which have provided the financing, hired the first and only ombudsman and picked the initial board of directors - including both senior bank employees and people described as independent.
  But Martin (whose office is not making available any details on the proposed legislation) also faces pressure from the Consumers' Association of Canada (CAC). Although it also opposed the proposed bank mergers, the CAC favours the current complaints procedure. CAC vice president Jenny Hillard voices concern that any changes might "dilute" the effectiveness of the current Canadian Banking Ombudsman system. "[It should be] left alone longer before we start messing around with it. It hasn't been there for long," she says.
  The CAC is not opposed to industries regulating themselves "if it is done right," adds Hillard. "Michael Laubert [the current Canadian Banking Ombudsman] is a very straight-forward guy; we have been quite impressed by him."
 

Neither bank service charges nor closure of bank branches - both extremely important issues for consumers - are handled by the Ombudsman. Those issues "are so broad, we don't have the resources to deal with them," says Ombudsman Michael Laubert.

  Laubert is definitely approachable. Just telephone his Toronto number and he is right there on the line; you don't even have to go through a receptionist. A chartered accountant, a former partner at KPMG and apparently in charge of a one-person operation, he maintains that the "independents" rule the CBO board. He points out that there are six non-bankers on the 11 member body, including CAC activist and York University economics professor Jim Savary.
  Laubert receives about 1,000 inquiries annually from bank customers, 175 of which end up as formal complaints. Many of the calls come from seniors. The majority of calls are about bank transactions going awry, where money is missing. Usually, a third party is involved, with the bank finding itself in the middle, he explains. Meanwhile, only about 15 per cent of calls he receives involve small business, a fact attributed by Laubert to an upswing in the economy. Neither bank service charges nor the closure of bank branches, both extremely important issues for consumers, are handled by the CBO. "No, we stay away from the broad industry systemic issues. They are so broad; we don't have the resources to deal with them," says Laubert.
  Laubert describes his job as conflict resolution. Unlike his British counterpart, the ombudsman's decisions are not binding, although he insists that the banks in Canada have gone along with all of his recommendations. Telling the banks "to step to it" is not a useful exercise, he told Straight Goods.
  It is hard to judge Laubert's performance - the entire process is confidential, including the names of the individuals and institutions involved, and the means adopted to resolve the conflict. However, complainants are not prevented from speaking out on a case, although none to date seem to have done so.
  Will Laubert survive the changes being contemplated by Paul Martin? No one really knows, including the CBO, although he is confident that the new ombudsman system will be modeled on the current CBO system.
  Duff Conacher, on the other hand, is calling for a complete overhaul of personnel, both on the CBO board and in the office of the ombudsman. He prefers having the federal government nominate the right people for the positions on the board, rather than maintaining the current "cabal," where independent directors get to pick their successors and thereby perpetuate themselves.
  Furthermore, says Conacher, the CBO should be structured like any other system set up for citizens who do not have the time or money to take the banks to court. "What is the principle of an alternative dispute resolution? One of the key ones is both sides get to agree on the arbitrator. The banks chose Mr. Laubert."
  Conacher favours a system that can impose binding rulings on the banks and will listen to all complaints forwarded by consumers. He has heard that Martin is considering setting up two separate offices, which he fears may actually confuse bank customers. One is a financial consumer agency, which will handle issues like the closing of bank branches; the other is an expanded and more independent Canadian Financial Services Ombudsman.
  With both agencies, all federally regulated financial services - including all banks and trust companies - will be obliged to participate, says Conacher. Currently, all the banks take part in the CBO process on a voluntary basis - the Citizens' Bank is not involved and Canada Trust only joined recently after its announced merger with the Toronto-Dominion Bank.
  Meanwhile, Hillard at the CAC is uncomfortable with what she describes as Conacher's "heavy-handed" approach to the banks. She opposes, for instance, the coalition's demand that bank statements mailed by financial institutions should include flyers on the ombudsman process and the means to fund and join a consumer group. Hillard makes no bones about preferring a system more "co-operative" to industry. "There would be a cost [to the imposition of the flyers] and that cost would get passed on to customers," she says.
  But some, including Conacher, say this position shows that the CAC has been co-opted by industry. Retired deputy ministers and business leaders, they point out, rallied to help the CAC during a funding crisis a few years ago, by setting up a separate foundation to underwrite things like research and office equipment.
  The new CAC executive director, Jaroslav Zajac, says he's not at liberty to reveal the names of the new supporters. He is the sole contact between the CAC and the foundation.
  "It is important that there be an arms-length relationship between the CAC, a consumer association, and any support we might get from industry," Zajac says.

Paul Weinberg is a Toronto-based freelance writer.

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Canadian Banking Ombudsman: www.bankingombudsman.com/ombud/english/ pages/home/ehome.html

Democracy Watch: www.dwatch.ca

Consumers Association of Canada: www.consumer.ca

Canadian Community Reinvestment Coalition: www.cancrc.org

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